In-Class Exercises-CVP xid-10896 1 PDF

Preview

Summary

in class exercise...

Description

Cost-Volume-Profit Review Problems QUESTION 1 Bridal Shoppe sells wedding dresses. The cost of each dress is comprised of the following: Selling price of $1,000 and variable (flexible) costs of $400. Total fixed (capacity-related) costs for Bridal Shoppe are $90,000. A. What is the contribution margin per dress? Revenues per dress– Variable Cost per dress = CM per dress $1,000 - $400 = $600

B. What is the Bridal Shoppe’s total profit when 200 dresses are sold? Revenues – Variable Costs – Fixed Costs = Total Profit 200 ($1,000) – 200($400) - $90,000 = $30,000

C. How many dresses must Bridal Shoppe sell to reach the breakeven point? X = Fixed Costs/Contribution Margin per dress X = $90,000/$600 X = 150 dresses

D. How many dresses must Bridal Shoppe sell to yield a profit of $60,000? Total Revenues – Total Costs = Total Profit $1,000X - $400X - $90,000 = $60,000 $600X = $150,000 X = $150,000/$600 X = 250 dresses

1

QUESTION 2 Northenscold Company sells several products. Information of average revenue and costs are as follows: Selling price per unit Variable costs per unit: Direct materials Direct manufacturing labor Manufacturing overhead Selling costs Annual fixed costs

$20.00 $4.00 $1.60 $0.40 $2.00 $96,000

1. Calculate the contribution margin per unit. $20 - $4 - $1.60 - $0.40 - $2 = $12 2. Calculate the number of units Northenscold’s must sell each year to break even. 20X - 8X - 96,000 = 0; X = 8,000 units 3. Calculate the number of units Northenscold’s must sell to yield a profit of $144,000. 20X – 8X – 96,000 = $144,000; X = 20,000 units

2

QUESTION 3 Berhannan’s Cellular sells phones for $100. The unit variable cost per phone is $50 plus a selling commission of 10%. Fixed manufacturing costs total $1,250 per month, while fixed selling and administrative costs total $2,500. A. What is the contribution margin per phone? CM per phone = $100 - $50 - 0.1($100) = $40 B. What is the breakeven point in phones? N = Breakeven in phones $100N - $50N - $10N - $1,250 - $2,500 = 0 $40N - $3,750 = 0 N = $3,750 / $40 = 93.75 phones Breakeven Point = 94 phones c. How many phones must be sold to earn a targeted profit of $7,500? N = Phones to be sold $100N - $50N - $10N - $1,250 - $2,500 = $7,500 $40N = $11,250 N = $11,250 / $40 = 281.25 phones To achieve target profit: Must sell 282 phones

3...